Core Islamic finance economies drives EM dollar debt market

August 19, 2025 (MLN): Dollar debt issuance from emerging markets (EMs) remained resilient in the first half of 2025, with the Gulf Cooperation Council (GCC), Malaysia, Indonesia, and Turkiye together accounting for just over half of the total, excluding China, according to Fitch Ratings.

Strong financing needs, diversification goals, and upcoming maturities fueled the momentum, while GCC countries benefitted from safe-haven inflows amid the US trade war.

The GCC debt capital market (DCM) surpassed $1 trillion outstanding during the period, representing 35.5% of all EM dollar issuance. Saudi Arabia and the UAE are expected to drive further growth, while Kuwait’s anticipated re-entry to the market later this year will add momentum.

Saudi issuance will be boosted by Vision 2030 projects, deficit funding, and diversification efforts, while in the UAE, diversification and the implementation of the Dirham Monetary Framework will spur activity despite expected fiscal surpluses, Fitch says.

Malaysia’s issuance is expected to slow due to debt-reduction efforts, while Indonesia’s DCM remains active into 2H25. Turkiye’s issuance should see modest growth.

The broader EM landscape will also benefit from falling oil prices  forecast at $70 in 2025 and $65 in 2026  alongside easing global interest rates. Risks persist, however, from US tariffs, geopolitical tensions, and sukuk compliance challenges.

Sukuk remain a major funding channel, accounting for 61.1% of Saudi Arabia’s outstanding debt and 59.3% in Malaysia. Significant shares are also seen in the UAE (21.9%), Indonesia (18%), and Qatar (17.8%).

Demand continues to outstrip supply, supported by Islamic banks with limited bond investment options. ESG sukuk are also gaining traction, making up 41% of ESG-related dollar issuance in EMs in 1H25.

Total EM dollar debt issuance reached more than $250 billion in 1H25. Saudi Arabia led with an 18.9% share, followed by Brazil (10.6%), the UAE (8.7%), Mexico (7%), Turkiye (6.7%), Indonesia (6.4%), Malaysia (4.1%), and Qatar (3.2%).

Sukuk represented 13.7% of all EM issuance, up from 12% in 2024. Despite regional conflict in June, DCMs in the Middle East showed resilience.

Foreign investor interest in EMs has risen amid diversification away from US assets, trade war uncertainty, and a weaker dollar. Foreign holdings of government debt remain highest in Malaysia (21.8% in 1H25), followed by Indonesia (14.5% in 2024), Turkiye (8.6% in 3M25), and Saudi Arabia (7.7% in 1H25).

Global index inclusion is further fueling demand. The combined weight of Indonesia, Malaysia, and Turkiye in the J.P. Morgan Government Bond Index-Emerging Markets reached 21.4% in 1H25, while Saudi sukuk are under consideration and the UAE’s eligibility for the EM Bond Index is being reviewed for 2026.

Overall, outstanding EM dollar debt hit $2.5tr at end-1H25, led by Mexico (11.3%), Saudi Arabia (10.1%), and the UAE (8.7%).

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